Andy Sheats, Founder, health.com.au

THE $100 MILLION FOUNDER WHO DIDN’T WANT TO START A BUSINESS

Forget everything you know, and everything you think you know, about starting a start-up.

If Andy Sheats’ success with health.com.au tells us anything – and let’s be clear, when you’re bringing in $100 million in revenue within three years of launch, you’re a success – it’s that to be an entrepreneur, you need to think of yourself as everything but an entrepreneur.

Sure, an Internet search of the phrase “how to start a business” would tell you otherwise. But the numbers speak for themselves. Doing things the Andy Sheats way might just be the path victory that every start-up founder is looking to find. The question is: what is the Andy Sheats way?

TAKE THE ROAD LESS TRAVELLED

Andy Sheats began his career in California. He completed an engineering degree in 1988 at California State Polytechnic University, and then embarked on a decades-long journey that saw him work in “primarily online businesses” on everything from strategy to operations.

In 2000, Sheats moved to Australia when the company he was working for at the time, Portera Inc., decided to open an Asia-Pacific outpost. Portera Inc. eventually went broke, but Sheats carried on down under, taking on a role as a management consultant at Booz Allen Hamilton before eventually joining realestate.com.au in 2005, when the website was still young.

From his early days as an engineer to his time at realestate.com.au, Sheats has had the good fortune to learn everything there is to know about the ins-and-outs of running a business. But it wasn’t until he left realestate.com.au in 2011 that he decided it was time to start his own business.

“I was leaving there about three years ago and just trying to figure out where to [go] next,” says Sheats. “I never really wanted to be [the] founder of a business, to be honest. I was kind of just thinking I’d get another straight job.” But the more Sheats looked at it, the more he “realized that the most interesting job I was going to get was going to be the one I was going to create.”

Admitting that building a business from the ground up “gets in your blood a little bit,” Sheats looked back to where he had come from to determine where he was going.

“We had a really great CEO and team [at realestate.com.au],” says Sheats. “I learned so much from them about how [to] take something that someone has an interest in and turn it into an obsession, and then ultimately make it into a business.”

“I came upon the idea of starting a health insurance business, which is probably one of the most old-school, staid industries,” says Sheats. But to bring a classic business idea into the now, Sheats knew he would need “to overlay an online [and] more contemporary customer experience.”

“It seemed a real challenge and [laid] on top of that there was [a] viable business opportunity to sell a whole lot of insurance and make it actually count.”

And thus health.com.au, one of the fastest growing companies in Australia, was born.

ASK YOURSELF THE TOUGH QUESTION

If you’re going to start a business, says Sheats, “There’s a couple of attributes that you’ve got to really think about before you pour yourself into it. Because it is going to take three times as long as you think, and it’s going to be five times as hard, and it’s going to cost ten times as much.”

“So the question is: why are you doing it? If you’re doing it because it’s something that you love, fantastic – or if there’s something in it that you love,” says Sheats. “Did I have an ongoing passion for health insurance? Not really. But I do have a … passionate interest in being healthy … so for me there is a connection there. But more than that, I’m really passionate about building a team and a business that I can be proud of, and that’s the connection for me.”

ASK YOURSELF THE TOUGHER QUESTION

For Sheats, the fundamental question always comes back to one thing: “Can we actually sell a million of these? To me that’s the difference between having a business and a curiosity.”

And it’s a question Sheats asked himself in the early stages of health.com.au.

“Health insurance in Australia is really a massive industry. About half of Australians are covered by private health insurance, so it’s almost a $20 billion industry,” explains Sheats. “And there is about 35 health insurers … and they’re all, for the most part, really old-fashioned.”

“And the thing that’s happened in health insurance that’s really changed over the last couple of years is the emergence of these comparison businesses [such as] iSelect. You go to iSelect, and what they do is [elicit] your needs. Then they look across all the products they have, and they say, ‘This is the best product against the needs you’ve got.”

“So, they don’t really care about brand. Brand is secondary. It’s actually the product. And that opened up a really interesting opportunity because as a new company you don’t really have a brand,” says Sheats. “And so then what matters is your ability to … focus the product design on the specific segments of that channel, and that was the opportunity.”

“We thought if we went into [comparison channels] that we could actually sell quite a few [health insurance policies], and as it turns out, we have.”

KEEP THINGS SIMPLE, STUPID

Health.com.au is selling in the range of 25,000 policies a year, but in order to fulfill the idea that they could “sell a million of these,” they didn’t just need a product.

They needed a vision.

“There is a bunch of different attributes to the business that you’ve got to kind of nail down,” says Sheats. “And you find yourself walking in this circle of, ‘What do we stand for? What do our products look like? Who are we trying to serve? How are we going to be different?’ ”

“You keep going around in circles, and it’s very hard. I found that there’s no way to solve that. It’s like an equation that has too many variables,” says Sheats. “And for us, the key point was when we acquired the health.com.au URL.”

“One of the things that I learned at realestate.com.au was the importance of having a really clear, functional URL; the URL that describes what you do,” says Sheats. “So, health.com.au was there in front of us, and we got it.”

“And all of a sudden everything fell into place because … what should health.com.au be? Well, it should be aimed at online people. It should have the characteristics of a great online business, meaning it’s transparent, it’s easy to understand [and] it’s open-ended. Our products should be aimed at this demographic, and built in a transparent way,” explains Sheats. ” And everything kind of fell into place once we nailed down one variable and for us the variable was ‘Brand Health.com.au.’ ”

KNOW WHAT YOU KNOW

With a vision in place, it was go-time.

Sheats and his team officially launched health.com.au on 15 April 2012, two weeks behind schedule. According to Sheats, the timing was critical, and they knew it.

“Health insurance is very seasonal,” says Sheats, nothing that around 40% of the year or more happens “between April and June.”

Despite the late start, health.com.au sold its first 1,000 policies within weeks of its launch date.

Although Sheats notes that this type of quick success is “extremely unusual in a start-up,” he wasn’t surprised by it. He pinpoints the large amount of “background work” his team put in, combined with the opportunity to launch their business instantly on the iSelect comparison site, as key factors in the site’s initial success.

But a thousand customers is still not a million. The site had momentum, but it needed growth, so Sheats and his team put a plan in place.

For the first year, they knew they could “use [iSelect] to get to scale,” and that is where “a huge majority of our sales” came from. But beyond that first year?

“We held back on doing direct marketing and sales probably for about 12-18 months,” says Sheats. Further, he explains, it didn’t make sense for the company to start doing “advertising on a business where we didn’t have that many customers, and we were going up against big companies.”

“We just thought we would grow in stealth through comparison channels,” says Sheats. “Probably about 18 months in, we started doing more direct work. We actually put together our first direct sales team [in] March of this year.” “We’ve built out more since then, and I think over time our direct sales will become probably 50% of our growth,” finishes Sheats. “But there was no rush to start [direct sales] until we actually had customers to reference and a bit more exposure in the market.”

AND KNOW WHAT YOU DON’T KNOW

It is plain to see that health.com.au is not your average start-up, and that must, at least in part, be because of its founder.

At 49 years old, Sheats is, by his count, “probably older than most start-up founders,” but this point-of-difference may just be his making. He readily admits that he has the “start-up fever out of my system,” but what he lacks in feverish enthusiasm, he more than makes up for in knowledge.

And when he doesn’t have the skills he needs, he finds them.

When Sheats was 40 years old, he went back to school. Despite years of experience in the business world, he saw an opportunity to start “filling in the blanks” and seized it by embarking on an MBA with Melbourne Business School, which he completed in 2004.

Sheats’ willingness to continue learning doesn’t stop there. He quotes others when discussing his business ethos – Freakonomics author Stephen J. Dubner, for one – and frequently notes the importance of building a great team. Indeed, there is a humility here you don’t often find within the entrepreneurial world.

“I think the magic of this business is actually not me in any way,” says Sheats. “The magic of the business is [that] it’s a good opportunity.”

KEEP MOVING FORWARD

Wherever the magic comes from, health.com.au is well on its way to selling “a million.”

“History will write itself,” says Sheats. “At this point I just feel good that we’ve got it off the ground, it’s running well, customers are really happy. And as a work-in-progress, it’s going really well.”

Key Takeaways

The secret to Andy’s success with health.com.au

Achieving rapid growth on a mass scale

The key questions you need to ask yourself when starting a business

How to handle growth (quality problem to have)

How to evaluate your startup idea

Full Transcript of Podcast with Andy Sheats

Nathan Chan: Hello and welcome to another episode of the Foundr Podcast. My name is Nathan Chan and I’m your host. Not sure if you can hear but we’ve got kookaburras in my backyard, an Australian animal just shouting out crazy. So I don’t know if this is gonna get picked up in the recording. Anyways, I hope you’re all having a great day today. Really excited to bring you today’s guest, and his name is Andy Sheats.

He’s the founder of health.com.au, which is a local startup in Australia, and it’s actually one of the fastest growing companies in Australia right now. They’ve got a run rate of $100 million. In 18 months they’ve achieved this. They’ve attained 80 000 customers and it’s just exceptional growth. So if you wanna learn anything around how to run an extremely successful startup with a rapid growth rate, what marking lessons you need to grow that quickly, how to find something that people just want and how to scale extremely fast, Andy shares with us a ton of gold.

One thing that Andy shared with me, which was one of my favorite things, is around what it takes for, in his mind, to build something that people want. I think you’re gonna really like his analogy on what you have to do to create something that people want. So, that’s it for me. I hope you’re having a great day and thank you for taking the time to share your earbuds with me. If you are enjoying these episodes, please make sure you leave us a review on Stitcher or iTunes or tell your friends.

If you think any of your friends will get a ton of value from this podcast or would like the magazine, feel free to share it with them and please do check out Foundr Magazine. It’s where I spend most of my time. Also, if you do want to get in touch with me, you can reach me at [email protected] I’d love to hear from you. I’m here to help however I can. So let’s jump into the show.

Hey everyone. Before we get started today, I just want to give a quick shout out to the sponsor of today’s show, Zirtual. Zirtual provides U.S.-based, college-educated virtual assistants who tackle both personal and administrative tasks. When you sign up, you’re profiled and matched with a dedicated assistant or ZA, that you work with one on one. Everything from research to reservations, inbox and calendar management. They are committed to helping you live a more stress-free and productive life. Starting as low as $3.99 a month for 16 hours, do yourself a favor this holiday season by getting yourself your very own ZA. Type Foundr into, “How’d you hear about us?”, in the box…the checkout on Zirtual.com, to receive $199 off your first month off any plan. Remember when you support our sponsors, you support the show.

Today I’m speaking with Andy Sheats. He’s the founder of health.com.au. And this is a start-up out of Australia and they are a very fast-growing company. They have achieved $85 million in revenue in 18 months. Is that correct?

Andy Sheats: Actually we are at $100 million run rate now.

Nathan: Wow, okay. Well yes, that’s a great introduction because… Yeah, I just wanna first ask you, how did you get your job? How did this all start? Like, as an entrepreneur, how are you doing what you are doing today? How did you find you doing this work?

Andy: Yeah. You know it’s interesting I worked…So, I’ve worked in primarily online businesses for most of my career. I’m probably older than most start-up founders I guess. I’m turning 50 this year. But I’ve been working, you know, in tech and online probably since I was about 25. And, I started in San Francisco where I worked for a big software company and then a number of small start-ups. And since I’ve been in Australia, I’ve been here for about 14 years and I’ve spent most of my time here working at realestate.com.au which, for people who are not in Australia, it’s probably one of the top, I don’t know, five websites in Australia now.

So, about a third of the population of Australia goes to the website every month. It’s a really big thing here.

Nathan: Wow, I didn’t know that.

Andy: Yeah, it’s huge. You know, so it gets a lot of consumer traffic and it’s also really super successful online business. I mean it would be doing, I don’t know, 250, 300 million dollars in revenue now and it’s probably market around five or six billion. Look, but when I went there, it was just a pretty small business. And, you know, I spent a lot of time. I think…you know, we had a really great CEO and team and I learned a lot from them. It was the first consumer internet business I’d done.

Nathan: Sorry, when was this exactly?

Andy: I would have been there in about 2005 and yeah, I mean I hadn’t done consumer internet before, but I learned so much from them about how do you actually take something that, you know, someone has an interest in and turn it into an obsession, you know, and then ultimately make it into a business that you’re actually not charging the visitor for? So, I mean, I think that’s the magic of consumer internet. Anyway, when I was leaving there, I suppose about three years ago, and just trying to figure out where to next and I went to the other consumer internet businesses and I was really… I don’t know. I never really wanted to be a founder of a business, to be honest.

I was kind of just thinking I’d get another straight job kind of like REA was and…but the more I looked at it, the more I realized that the most interesting job I was gonna get was gonna be the one I was gonna create, because as I looked at what was out there, I just wasn’t that excited about it. And then, you know, came upon the idea of starting a health insurance business which is probably one of the most old-school state industries, but to overlay an online, you know, more contemporary customer experience onto this really old-school, somewhat boring state industry, it seemed a real challenge. And laying on top of that, that there was actually a very viable business opportunity to sell a whole lot of insurance and make it actually count, make it viable.

It just seemed like, yeah, the most interesting job I was going to get was gonna be the one I was gonna create. And that’s kinda how I got into it. It wasn’t…you know, it wasn’t that I wanted to start a business. I wasn’t…I kinda had the startup fever out of my system but, you know, I thought it was just a great opportunity to build a good personal experience starting with, you know… I wasn’t gonna get a CEO job. Nobody was gonna hire me to do one, but if I started the business, they couldn’t say no. So there you go. That’s sort of how it happened.

Nathan: Interesting. I’m curious. And why do you say that no one would hire you as a CEO? Like, what were your previous roles in like, some of the startups you have done? Were you a founder of any of those other startups?

Andy: Most of the companies that are hiring CEOs, I find Australia is really risk-averse. You know, in established online businesses, once they get going, they tend to have…make pretty low risk hires. You know, so you’ll see people moving from offline businesses to run online businesses. You know, a lot of…if you look back over the last couple of years of hires into kinda CEOs of, you know, the more established consumer internet business, many of them are people who have never been really that involved online. They were kind of low-risk hires.

I find the Australian kind of online culture to be, or business culture, to be a pretty conservative. And I guess, you know, the natural hire for a CEO job was someone who’s been a CEO. But, you know, it’s pretty hard to break through that. So, I just found a bit tough going even though, you know, I had run most of the functional areas of the businesses whether it’s, you know, product or sales or whatever. But, it’s kinda hard to break through. Yeah, like I said, if we start the business, then no one can say no I guess.

Nathan: I see.

Andy: And it just turned into a really good opportunity personally and a great business as well. I mean, you know, I mean, the success of all of us that are in the businesses, it’s ultimately based on the success of the business but, you know, you’ve gotta have the ability to create that opportunity for yourself and that’s kind of what I guess was the basis of this. Very long way to answer, I’m sorry.

Nathan: No, that’s fine. I’m just trying to delve deep and find out your background because to start a company like health.com.au and sell health insurance and to achieve the growth that you are achieving, how… What I’m really trying to understand, how many businesses have you created and what have you brought to the table that has just made this thing just go crazy?

Andy: I think the magic of this business is actually not me in any way. The magic of the business is really, it’s a good opportunity. The reason why the business has been successful, traditional health insurance in Australia is really a massive industry. So there’s…about half of Australians are covered by private health insurance. So, it’s almost a 20-billion-dollar industry in Australia. And there’s about 35 health insurers. So it’s super fragmented. And they’re all, for the most part, really old fashioned. So they have, you know, retail shop fronts, they’re…most of them are aligned around union memberships or regional areas.

And the thing that’s happened in health insurance that’s really changed over the last couple of years is the emergence of these, you know, comparison and aggregator sort of businesses like iSelect. You know, you go to iSelect and what they do is they…as a consumer, they ask you…they sort of elicit what are your needs. And they look across all the products they have, and they say, “Oh, this is the best product against the needs you’ve got.” And so, they don’t really care about brand. Brand is secondary. It’s actually the product. And that opened up a really interesting opportunity because, you know, as a new company you don’t really have a brand. And if you’re playing in the old world, you know, Medibank, Bupa, those guys were spending 80 million bucks a year, or something above the line. And they had these powerful brands that you really couldn’t compete with if brand is important.

But if you go into a channel that’s a comparison channel, brand isn’t important. And so then what matters is your ability to actually really focus the product design on the specific segments of that channel. That was the opportunity. And we thought, if we went into that we could actually sell quite a few. And as it turns out, you know, we have been selling, kind of on the order of 120, 125 thousand policies a year in that way. And you know, that’s really the…if there’s magic behind it, it’s the opportunity. It’s the business opportunity rather than my background. My background really was just, you know…what I added to that was, I’ve done a whole bunch of online strategy and M&A and product design and you could see an opportunity. It’s always…you know, when someone talks about a new business, you know, it’s like, “Hey, that’s a really nice mousetrap, but how many of those can you sell?” You know, it’s a great idea but it’s not gonna change the world if no one buys it.

This opportunity, I could look at and go, “You know what? There’s actually a really big commercial opportunity to sell a lot of insurance and build a proper business.” That’s why it’s worked. And then secondary to that is, what does the team bring to make it different from what’s out there? How do we actually deliver on that, you know, online experience that we’ve promised in the, you know, the brand that’s health.co.au? It kind of implicitly makes a claim that it’s gonna be a reasonable online business or business experience or…you know, for customers. So how do we deliver that?

That really came down to just gathering, you know, between myself and the other founding group, putting together on one hand, a really competent health insurance team of people who have, you know, deep, long-term experience developing products and all of the regulatory frameworks and how do you manage the business and deliver customer experience. So that stuff we’ve nailed with hiring a really good team who knows how to do it. And then the other part is hiring a good online team to deliver that differentiated online service experience. And I’ve pulled together you know, some people that I worked with at realestate.com.au. One of the guys who came from Psych Point [SP] and 99designs is our head of marketing and a couple of development people who’ve worked in those places.

And, you know, and just pulling together sort of the right set of people that could actually then deliver, you know, health.com.au as an insurance business. So yeah…I mean, my background for what it’s worth is I did engineering at school, it’s kind of an unusual brand of engineering called industrial engineering. This was back in the ’80s. What we were really learning was lean manufacturing. And so my first jobs were actually in lean manufacturing. And that really contributed because, when I was at realestate.com.au, we started using Agile really primarily in the web development group. And, I didn’t even know what Agile was but I thought…I’m like, “Whoa, that…” It just made such sense to me. And, you know, I could see the team, the culture of the team changing, the nature of the work they do changing, the deliverables and quality. Just, everything was so much better.

And it wasn’t until sometime later that it was explained to me, you know, by like a friend of mine who really understood it. He said, “I know why you like this, because you liked lean back in manufacturing and Agile is just an adaptation of lean. It’s the same lean concepts applied to software development. And so, one of the things we did as we came to this business, we started using Agile and essentially lean from day one and so in terms of building up the business, the product structures, all of the systems, we really aimed at how do you actually make sure that you’re focusing on those particular attributes that add customer value. I mean, that’s really…in essence, that’s what lean comes down to. And Agile really is with that.

Back to engineering. Then after working as an engineer, worked in management consulting, doing a lot of lean work actually for the first four or five years and then worked in a big software company in, well it wasn’t so big then, but it was called Sybase. It had just IPOd. I worked there for eight years I think. I was the head of…well, I was like the head of strategy for a while and I ran a lot of M&A type projects and then I was the operations director for the business for about four or five years. And that was like, you know, hardcore operational work. How do you actually put in place, you know, sales and service procedures to actually deliver…you know, to deliver? Because, I mean that was like probably a billion-dollar revenue business. It was a bigger business then. That’s back when a billion dollars was a lot of money.

And then, I left there to join some friends of mine from Sybase who had started another startup company called Portera. And along the way I actually was involved in quite a few startups, not really quitting my job and doing them but I was involved in one that was doing like an HR marketplace, another one which did sort of an online grocery experience and actually that business ultimately kind of over time became Webvan, which was quite a big startup in the U.S. I wasn’t involved with it at that point but just at the early stage. And then Portera which was one of the first Software as a Service businesses. It was pretty much, Software as a Service in 1998 was us and Salesforce. Yeah, it was us and Salesforce. And Salesforce had a really great strategy because what they did was, you know, they…obviously there’s CRM and I got involved because I was actually doing a lot of CRM work in our business. So, but Salesforce was CRM. This business was kind of CRM, but it was more kind of practice management for consulting firms and it was delivered in the same way that Salesforce was at the time.

The big lesson out of that was, Salesforce served the broad market of all business, ours served a more specialized market which was consulting firms who tended to do internet work. The lesson was actually if that market segment goes away, your business goes away which is what happened because… You know, we actually had that business up to $40 million run rate and it was going pretty well, about a hundred people. I mean, I wasn’t a founder, I was actually one of the later joiners, but it was going really well but then in 2002, I suppose, the sort of dot bomb I guess, when a lot of businesses…a lot of online businesses went broke. And then soon behind them, a lot of them in the valley and in the U.S., were using these consulting firms to do a lot of the development because they just couldn’t get enough staff. And then those guys went broke, and then we went broke. So, picking a good broad market was a really…I mean, was a big lesson for me. And that’s where, you know, health insurance…I think it’s very broad, I mean, it’s half of Australians. It’s quite a big market. So that was quite a big lesson for me.

But in…you know, in that business, it was really how you deliver kind of an online working experience. And then came to Australia, or I was in Australia actually for a while with them, and then I went back actually and did an MBA here at Melbourne business school, kinda filling in the blanks of, you know, different experience that I’d… You know, the white space between the areas that I had worked in and understood which was actually useful for me because I was probably about 40 when I did that, it was quite a great way of pulling together various experiences. I went back and worked at…in consulting again for a very short time at Bruce Allen, for probably a year and a half. Didn’t really enjoy it that much. And then was at realestate.com.au after that and was there for, like I said, six or seven years. And, you know, that was probably one of my all-time great experiences because it gave me the ability to work in pretty much every part of the business and as it grew, the opportunity grew from the…yeah, it was just a really fulfilling place to be.

Nathan: Wow. So, look, there’s a lot I’d like to unpack. And the first thing is, just from my observations, it sounds like, you know, you’ve been involved in startups for a very, very long time. So, you know, it’s only kinda been a natural progression that you’ve gone off to start your own thing, I think.

Andy: Yeah, it’s interesting. I mean, when I came to Australia…and I actually came over here with Portera, because we had acquired a business here in Australia and we wanted to roll out Asia and so I came over to get that going, and when the business in the U.S. went broke and closed, I mean, that was, you know… Oh, look, I mean, in American startups, that’s just, you know, you’ve earned a stripe. I mean, you know, if you’ve made good decisions and fail and you try hard and, you know, that’s okay. In Australia it’s not a great thing. I actually had a hard time figuring out what to do next and I absolutely did not want to join any startup which was kind of probably the reason why went to Bruce Allen’s, anything.com.au. I didn’t want to do dot com and dot-au was just narrowing it even further.

And when…you know, when I met the guys from realestate.com.au, I actually told them, I was, “There’s no way I’m gonna join your company.” You know, I just…I was picturing it as, you know, two guys and a dog in a shed and I just…there was no way I was going to start another…go in with another online startup. And, you know, I kinda got sucked into it, the same way that I did with health insurance. Is you just, you know, I go on these meets, spend time with them and they’re interesting and they’re really on top of it, they are great people. It’s a really compelling idea. In that case, it was already pretty well developed. I mean, they were already pretty well developed, they were probably, I don’t know, 80 staff or something at that point. And before I know it, I’m working there. And I’m in another dot-com business. You know, and then when I left there, I wasn’t gonna go start a business. I was just like, “No, I’m done with that. It’s too hard.” And, you know, I went and talked to all the online businesses and I ended up back, you know, doing it again. So, I suppose it gets in your blood a little bit.

Nathan: Yeah. Yeah. It sounds like it. Like, also, one thing that shouts out at me is…one of my favorite books by a fellow named Robert Greene who’s actually…you know, I’ve interviewed him for the magazine. He wrote a book called Mastery and he talks about, to obtain mastery, you generally need to do whatever that is, like whatever thing that you trying to master or whatever, craft at least 10 000 hours. You need to spend at least spend 10 000 hours on it. And it sounds like you’ve done your 10 000 hours. Is that safe to say?

Andy: I reckon I’ve probably done about 10 billion hours but the other part that the book doesn’t say though, is that you keep coming back to what you…they don’t actually treat like. You know they, in the book they talk about like Mozart. And I don’t know whether he was addicted to piano, I’m not sure if I’m addicted to startups, but you can’t…you know, even though you kind of get better at it and you keep coming back and doing it as well.

Nathan: So you read the book?

Andy: I know the book. I haven’t read the whole book, but I remember reading quite a few reviews of it when it came out.

Nathan: Interesting, okay. We’ll look…let’s switch gears and talk about customers. Like, how did you guys go about finding your first a thousand customers and what can the audience learn from your skills in customer acquisition in the early days?

Andy: In the period before we even had customers, you know, when we were getting started, there’s a bunch of different attributes to the business that you’ve gotta kind of nail down, you know, and you find yourself walking in this circle of, you know, “Well, what do we stand for? What do our products look like? Who are we trying to serve? How are we gonna be different?” You know, and then back to, “Well, what do we stand for?” You know, and you kind of keep going around in circles and it’s very hard. You know, you kinda…I found that there’s no way to solve that, you know. It’s like an equation that has too many variables and you gotta nail down something.

And for us, the business had a…we just had a different…we had a kind of a working name of NIA, which is still the parent company’s name, but it was just kind of a working name. And for us, the key point was, when we acquired the health.com.au URL. You know, one of the things that I’d learned at real estate was the importance of having a really clear functional URL. You know, the URL that describes what you do. Because, on one hand, you can go out and name yourself something bizarre and then, you know, Amazon…you know and then build meaning around it or, you know, if you’ve got the money and the time, you can do that or alternatively you can be biggestbookshop.com, you know, or whatever, right. You can pick something quite functional and in the absence of other competitors, you can actually make that meaningful.

So anyway, health.com.au was there in front of us and we got it. And all of a sudden, everything fell into place because you know, health.com.au…what should health.com.au be? Well, it should be aimed at online people, it should have the characteristics of a great online business, meaning it’s transparent, it’s easy to understand, you know, it’s open-ended and so our products should be aimed at this demographic and, you know, and built in a transparent way. It really, you know…and everything kind of into place once we nailed down one variable. And for us, the variable was brand health.com.au. And so, all of a sudden all of the product development, product design channels, everything fell into place. And that really drove our product, you know, design philosophy. That and, you know, and building things to fit into comparison engines like iSelect.

I think that the first 1000 customers, I mean, we sold our first thousand customers in about two weeks because health insurance is very seasonal, and it starts in April and goes to June. It’s like 40% of the year or more happens between April and June. And so, we were really killing ourselves to be launched by April and as it turns out, we didn’t get out till April15th which was two weeks later than we wanted to but, you know, in no time, you know, we were on iSelect and we sold, yeah, we sold a thousand polices I reckon in a couple of…two weeks probably because we finished June with about 4000. And it was really…you know, for us it was brand, product attributes and all the background work that went into developing channels, you know, an offer through a channel that actually would have high uptake and then building out that channel and all the competence to deliver it so that when we opened the door, it literally flooded.

Now, that’s extremely unusual in a startup. You know, usually, you know, you launch and you soft launch and you know, on day five, you know. I heard an analogy being of the industry recently. Somebody said, oh, it was actually Steven Dubner who wrote Freakonomics. He said, “Yeah, you know, I wrote a new book and it’s always so anticlimactic, you know, when your mother, you know, the first person who calls you about it is your mother and she usually calls and says, ‘I thought you were gonna write a book’ and he’s like, ‘I did, it’s out there.'” You know. And no one’s bought it. And she has never heard of it, right? And that’s normal how, you know, how startups work is, you know, you launch them, and everyone knows.

Nathan: It’s like a struggle to get those first thousand customers.

Andy: Yeah, it’s huge. I mean, there’s so many fantastic businesses that have never sold much. And, you know, they’re great opportunities and great…or they’re great ideas. So for us, I completely recognize that our experience in this startup was extremely unusual, but that’s why we did this one. It’s because we thought that there was a really good opportunity to get serious traction and get to scale very quickly.

Nathan: So, from what I’m hearing, it’s…you’re saying that the most successful marketing channel or channel for customer acquisition that you guys have is iSelect which is an aggregator of these health insurance policies.

Andy: Yeah, well, I mean, we saw…like in the UK, online aggregation and comparison sites are huge for all financial services. Actually for almost everything. In Australia, that’s not quite as big. Well, it’s much smaller, but in health insurance, iSelect is big. They are really effective and for us, a really effective, very good, cost-effective channel that we can use to get to scale. And so, in the first year, they were you know, a huge majority of our sales. And we held back on doing direct marketing and sales probably for about 12 to 18 months because for us to start doing lots of, you know, advertising on a business where we didn’t have that many customers and, you know, we were going up against big companies that were doing tons of above-the-line advertising, we just thought we would grow in stealth through comparison channels and then…probably about 18 months in, we started doing more direct work. We actually put together our first direct sales team only about March of this year. So that was…we were probably two years old and we put…you know, we actually pulled people together and said, “Okay, now you are the sales group.”

You know, and implemented Salesforce for them, right, you know, and we…until that it was…you know, the number of direct leads we generated were very limited. It just wasn’t our priority because we could get scale through the other channel. And, you know, that was really such a good business opportunity. We’ve built up more since then. I think over time, our direct sales will become, you know, probably 50% of our growth, but, you know, there was no rush to start that until we actually had customers to reference and a bit more exposure in the market which, but that’s coming now. You know, that’s starting to happen. Nathan: I’m interested. You talked about branding. What do you think it takes to build a solid brand?

Andy: Gee, I don’t know. You’d have to ask somebody who’s more on top of marketing. You know, I mean, you think about the things…in Australia, most of the bigger online brands are your extensions of existing businesses or they’re classified type businesses, you know, real-estate car sales. And, you know, in Australia, you know, I think that it’s been the areas where people were kind of interested in doing, you know, customers were interested in engaging anyway. Look, every brand’s gonna be different. I suppose it’s, you know, it’s how do you put meaning around what you do and how do people associate with that beyond kind of just their day to day use of a product? And, I mean, for us, you know, the reason why we liked health.com.au is it’s very clear. It’s health. That’s what we want people to think, you know, about us. You know, we wanna be part of your health and, you know, ultimately, we wanna inspire good health and we wanna help keep you healthy when you get sick, through the insurance.

And I’d say, we’re probably only…you know, we’ve probably only really delivered about, I don’t know, a quarter of that full brand vision because at the moment, it’s primarily insurance. But I think, you know, over time, we build out the other attributes of the brand so that people actually think of us as health. You know, and I mean health in a proactive way, not health as in, “Ah, I’m in a hospital. What do I do next?” You know. But how do we actually inspire people to be healthy, you know, get healthy, stay healthy, be healthy and, you know, that’s I think where we’re going over time. That yeah, we’ve only…you know, we’re so young we’ve delivered on about a quarter of that so far.

Nathan: I see. And, I’m curious. Out of like this whole journey…so you guys have been a…you guys have been going for about 18 months? You’ve been…

Andy: We’ve been actually selling for about two and a half years now. So, we started in April of ’12, selling and then we’ve been…yeah, so it’s about two and a half years.

Nathan: Okay. And has there been any struggles, failures? What have been the hard parts?

Andy: Oh yeah, it’s all along. It’s…you know, there’s nothing harder than starting another business, I think. Look, I think at the beginning, you know, we had to become licensed by the government. They hadn’t really done that in a long time. I mean, we’re the first one in 30 years probably. So, you know, we’re coming in as a small upstart into an industry that’s got very long, established businesses that are well capitalized. And so, for us to develop the confidence of the regulator and put in a competent application and…you know, and do all the things we needed to do to fulfill kind of all the regulatory requirements was pretty tough work.

Nathan: I can imagine.

Andy: But very…it was interesting. It was very fulfilling and in that area in that time, you know, we were just getting going, pulling together a new team and we were using Agile because it was…it was great. Like we had one clear outcome which was, “Get our first revenue.” And it was almost like a project to get that done. And it’s a lot of work, but it was quite fulfilling and pretty straightforward. Along the way, for me, I guess the most…the biggest difficulties have always been related to growth. In a growth insurance business, you’re always growing…you have to grow your credential [SP] capital, at the same time that you’re growing your policies, you know. So you’ve gotta have…it’s insurance business, so you have to have a balance sheet to cover claims. So, you know, early on, I think fundraising was really, really difficult because it’s not your typical, you know, tech startup where you’re gonna build an app and give you a thousand bucks and I can sell it for a million. You know, you’re building a proper business with a balance sheet so you’ve gotta raise more capital.

So capital raising was very hard early on. We’ve had to raise quite a bit. So, we’ve had to raise about…we’ve raised $33 million in equity, over two, three years I guess. So that was pretty hard. And, you know, it’s always the challenges of not running the business but running the business with such high level of growth. That’s probably the biggest challenge for us and that’s you know…that kind of introduced quite difficult problems at times. I mean it’s…you know, if we’re raising more money or, you know, if we’re… A typical insurance company grows very slowly. And so their actuarial model, you know, they use to estimate claims out into the future.

It’s like you’re driving down a road and you’ve got the high beams on and you can see for miles. You know, just know there’s nothing out there because their past is very much like their future. But when you’re growing really fast, you know, and you’ve got a short history, and the history is changing very quickly, you don’t have that tremendous view out into the future and it’s almost like, you know, you’re on, not just the low beams but the parking lights, you know. And so your view out into the future is somewhat obscured. And, you know, you’re an insurance business so you’re kind of based…you’re basing yourself on your ability to see risk in the future.

And, you know, for the most part, I think we’ve weathered that really well but at various times, you know, you’ll go, “Ooh,” you know, “is this right?” You know, “Did we make the right decision?” And we’ve done pretty well on that and when we have made the wrong decision or, you know, when we have not seen the future as it…you know, as we thought it should be, you know, we’ve adapted very well and done the right thing by customers and investors to make it…you know, to make it work and you know, it’s pretty quick responses, you know, harrowing nights of sleep. So, you know, it’s really growth-related questions that keep me up at night. The actual business itself. If this was a run rate, you know, kind of normal health insurance business, I think it would be pretty straightforward to run because it’s a…you know, they are very good businesses. People sign up, they stay with you for a long time. You know, if you do a good job, you don’t lose people very quickly.

Nathan: That’s so true.

Andy: You know, yeah. So it’s…I mean, they are fundamentally quite good businesses as much as I don’t really wanna be in a steady state business, I think I’m kind of jealous of people who are because I think it’d be, you know, relatively straightforward compared to, you know, having to deal with growth issues all the time.

Nathan: Yeah. So you think that would be a really quality problem to have, right?

Andy: Ah, it would be great. Someday we’ll have the problems that Medibank has. It will be fantastic.

Nathan: So, I’m curious. What advice would you give because from what I’m hearing is you saw a massive opportunity with this industry and you saw that it could be disrupted, and you saw that you could make a difference. And I’m curious, what advice would you give to early-stage entrepreneurs and early-stage startups that are looking for opportunities. How do you go about evaluating them? What advice would you give?

Andy: You know, the fundamental question for me always comes back to the question I asked earlier, you know, “Hey, that’s a great mousetrap. Can you sell a million of them?” You know, because if you can’t sell a million of them, you’ve got a curiosity, not a business. The two kind of general businesses that you see built through startups is, one of them is, “We’re gonna do something better than the incumbent.” I would put us into that category. Health insurance exists. We’re gonna do it better than those guys. And along the way, we’re gonna take their customers and we’ll probably learn and change the industry. But, our core proposition is that we are focusing on a segment and doing it better than the other people.

The other business is, we’re gonna drop a bomb on the music industry and change the rules. After the bomb goes off, we’ll be the most competitive player. You know, they’re doing something that essentially destroys an industry so that the rules fit them. And I would call those people more of the disruptors. You know, realestate.com.au, I think a good example, right, is a media business. It’s not a real-estate business. It’s a media business. And what they did, is they went in and they slaughtered newspapers. And they changed the landscape of how real estate was marketed and advertised, you know. After they blew up the market, they were the best thing there, you know. You know, Apple with music, right? You know, they blew up traditional recorded music distribution and when the rules changed, they were the best business out there. And other people have come along since them and have to give it to them as well but there was that, you know.

So, I think there’s these two businesses but regardless of whether you are doing it better than someone else or you are gonna destroy the existing industry and put something in its place, you’ve gotta be able to say, “Can we actually sell a million of these?” To me, that’s the difference between having a business and a curiosity. You know, not to say you shouldn’t do it, but you should go into it with your eyes open. And if you wanna be a kind of a game changer business, you’ve gotta actually look for how you’re gonna get bigger volume and, you know, broader adoption.

Nathan: Yeah, well, I love that analogy. That was great. I have a couple of more questions then we have to work towards wrapping up things up, Andy. One is, what do you think it takes to become a successful entrepreneur?

Andy: Ultimately, it takes a successful business I think. Nobody looks to people who were really smart and did good work but the business didn’t work. You know, I think at the end of the day, you know, you’ve built something that… If you’ve built something that was, you know, from scratch and you know, you took a risk and you built something that was of…that ultimately became successful and did something meaningful, I think then that’s kind of the…you know, that’s the hallmark I think of an entrepreneur. And if you’ve done it more than once in different areas, that’s even better I think, you know, like…

I know quite a few people who have started really successful businesses, sold them and then started another one just like it. And sometimes they sort of say, “Well, you know, I just wanted to prove that it wasn’t luck the first time.” I think it’s more than that. I think it’s actually…what I find really amazing are people like, you know, like Elon Musk, right? “Let’s start. Let’s do PayPal, rocket ships, electric cars, you know, high-speed transportation.” You know, to me that’s like an amazing level of entrepreneurialism, right? It’s, “I’m gonna just apply first principles to different industries.” You know, I find that just absolutely amazing. To me, that’s the hallmark of a true entrepreneur. It’s like, first principles, you know, innovation in different industries and if you can make that stick and you can actually be successful with it, that is incredible. By the way, I’m not…I wouldn’t rate myself on that scale.

Nathan: No, no. Well what you’re doing is very impressive.

Andy: Yeah, but we have yet to see, right? I mean, the test is always, you know, did it work over time? Look, I think it will. We’re working very hard to make that the case, but history will write itself I suppose, you know. At this point, I just feel good that, you know, we’ve got it off the ground, it’s running well, customers are really happy. As a work in progress, it’s going really well.

Nathan: Yeah, okay. One last question, are there any final words that you would like to share? Any gold advice or words of wisdom that you’d like to finish off on? Something that you’ve learned that has been really valuable to you as an entrepreneur that you’d like to share or pass on? Then we’ll wrap up there.

Andy: You know, if someone’s in the state of considering the business that they might wanna start, there’s a couple of attributes that you’ve gotta really think about before you pour yourself into it. Because it is gonna take three times as long as you think and it’s gonna be five times as hard and it’s gonna cost, you know, ten times as much as your PowerPoint says it will. So the question is, why are you doing it? you know. If you’re doing it because it’s something that you love, fantastic. Or if there’s something in it that you love. So for me, did I have an ongoing passion for health insurance? Not really but I do have an incredible passion and interest in being healthy and so I’m…like I’m very active in athletics and living a healthy life. So for me, there’s a connection there. But more than that, I’m really passionate about building a team and a business that I can be proud of. And that’s the connection for me. So, you know…it’s not as strong as if I was, you know, if I just had a passion for health insurance. That would probably make it even better.

But you’ve gotta have something that says, “You know what? I love it and I’m gonna stick with it.” And then the second thing, I suppose, is it’s gotta have a reasonable opportunity of success, you know. Like, is this market I’m going into big enough that I’m gonna sink five years into it?” And then lastly, “Do I have …”, you know, “If I execute this plan, what’s my probability of actually taking enough of that market to make it worth it?” You know, so it’s sorta, I guess… You know, and that’s why I think people get unhinged a bit because they start businesses for the sake of starting a business or, you know, simply because I love crochet, I’m gonna start crochet.com but, you know, you’ve gotta actually have all three, right? So, an abiding passion for what it is that you’re doing. So stick with it when it’s gonna be really hard. An interesting market that’s big enough to matter and a probability of actually having some meaningful success in that market. If you don’t have all three of those, my advice is that you probably should keep looking. And not start a business just for the sake of starting a business but start a business because you are interested, it’s in a good market and you have a reasonable hope of success.